The Logic of Life | Tim Harford | Talks at Google

Hi everyone, thanks for coming. Thanks for waiting. We have a very special guest with us today as part of the authors of Google Program. Tim Harford is the author of the best selling book the Undercover Economist, which explains how economic forces shape our lives, often without our knowing it. Today he's here to talk about his latest book, the Logic of the Rational Economics of an Irrational World. Got ahead of myself, but to backtrack. The Undercover Economist, Tim's previous book, has sold well over 600,000 copies and it's now been printed in over 25 languages worldwide. And it demonstrates what I think is Tim's true talent for uncovering the inherent role of economics in our everyday lives and applying economic theory to experiences which we all encounter on a daily basis. Tim also has a column called the Undercover Economist that is published in the Financial Times and for Slate magazine. According to his website, TimHarford.com, he is also the only economist in the world to run a Dear Economist advice column in which readers can seek answers to their own personal finance questions. In addition, Tim can be heard on the BBC radio series More or Less and is also a regular contributor to Marketplace and the BBC World Service and has written for Esquire, Forbes, New York Magazine, the Washington Post, and the New York Times to suggest, to name a few. And as a friendly reminder, if you have any questions, please feel free to use the microphone that we're going to have set up. So just remember that your questions are really integral part of the presentation. We want to make sure to capture that for the YouTube audience. So with that being said, let's all give Tim a warm welcome to Google today.

Thank you so much, Tyler. Just one small correction. Dear Economist does not give personal finance advice. Dear Economist gives dating advice, how to get over your divorce, whether you should have a bikini wax, you know, the really important stuff, all using economic theory. So just so that's clear, thank you very much for the invitation to come to Google. I am astonished, Tyler. Having shown me the free food, the pool, the billiard tables, all the amazingly cool stuff that you guys could be spending your time doing, I'm astonished and I'm flattered by the turnout. Thank you very much. I realize you're all very busy people, so thanks for coming along. I'm here to talk about my new book, which is called the Logic of Life, the Rational Economics of an Irrational World. Let me start with irrationality and I'll get to the Irrational world before long. I want to introduce you first of all to Mr. Rational. He's the world of economics. Closest answer to Mr. Spock, and his name is Gary Becker. Gary Becker is an economics professor at the University of Chicago. He's in his mid-70s, he's a grandfather. He's quite a tall, slim man, wispy white hair. And I went to visit him in Chicago to interview him for the Financial Times. There's this very famous story about Gary Becker. When he was accepting the Nobel Prize for Economics back in the early 90s, Becker won the Nobel Prize for applying economic principles, I'll say more about what that means in a moment to things such as racism, crime, marriage, even addiction. Applying economics to life. And he told a story in his Nobel acceptance speech about running late to examine a student for the Ph.D. and he realized that there was no way that he was going to be able to make it to the examination without parking illegally. So very quickly, he's a very smart economist. He thought to himself, okay, how many traffic wardens have I seen? How likely is it that we'll get a parking ticket? If I get a parking ticket, how expensive will it be? Will I get towed? Or will it just be a ticket? How much is it going to be? How bad would it be? Not financially, but for my reputation. How embarrassing would it be if I were to show up late for one of the most important days of this student's life? His PhD examination. And he very quickly weighed up these costs and benefits and he calculated that it was probably rational to park illegally. And he walked straight in on time to the PhD examination, sat down and immediately grilled the student and about how an economic theory of rational crime would work. There was a happy ending to the story. Well, two happy endings. First, the student passed, and second, Becker didn't get a ticket. That worked out very nicely. Anyway, I digress. I was delighted to meet Becker. I went to his house near the Hyde park campus. He introduced me to his wife, we talked a little, and then I got into his car and he drove me to a restaurant where we were planning to have lunch and I was going to interview him over lunch. To this day I don't know whether he was winding me up, but he then drove straight into a 30 minute only spot for our two hour lunch. Looked at me, I looked at him and I can't do his Brooklyn accent, but he said, we should be okay. I don't think they check very carefully. I said, was that a rational crime? He said, yes, it was. So there you go. That's the basic economics of crime. And by economics, we're not talking about commercial, we're not talking about financial dollars and cents. What we're talking about is a rational evaluation of costs and benefits, risks and rewards, of choices and of consequences. That is what Gary Becker is all about. As I say, Mr. Rationality. Charming man, but very, very calculating. And there is your theory of rational crime, your economic approach to crime. Except we can't really leave it there, can we? Let me tell you another story. I used to live in Washington D.C. until quite recently. My wife and I were walking along 15th street in D.C. northwest. It's quite a safe area. We were walking back from an ice cream parlor. We had ice cream cones in our hands. It was a sticky June evening. Washington gets quite humid. On my back in a baby carrier was my 13 month old daughter wriggling away. We were eating ice cream, we were talking and we were snapped out of this by a scream from across the street. We looked up and there was a guy chasing a woman around a suddenly stopped car and she was screaming and we thought to ourselves, well, they've got to be just having fun, right? Because we have ice cream, ok? So it's got to be fun, right? But it wasn't fun, it wasn't a joke, it wasn't a game. She fell over, hit the tarmac in front of this car and he immediately jumped on her and he started hitting her as hard as he could. And at that point, somebody who was a lot braver and a lot quicker thinking than I am or was, sped across the road, sprinted across four lanes of traffic which all screeched to a halt, hit this guy and knocked him off the woman. I'm a rational economic individual. So when my wife told me to get involved, I took the baby out of the baby carrier and I sort of trotted a little hesitantly over the street and a lot of other people were doing what I was doing. The best way I can describe what was happening was the whole neighborhood was suddenly rising up to protect this woman. When I arrived on the scene, there were three people struggling and they were all covered in blood. I realized I'd gotten involved in something that I wasn't really prepared for. There was a knife. I didn't know where the knife was. I wasn't really very much help, but it didn't matter because so many people jumped in there, jumped on this guy, pinned him down. We worked out where the knife was and I was left staring into the eyes of this girl who lay on the tarmac. As far as I can work out dying. She didn't die, she made it and she made it because her neighborhood protected her. That was a totally random attack. They didn't know each other. The attacker told the police he'd been taking drugs, celebrating his birthday, and he just attacked this woman and she nearly died. The book is an attempt to confront Gary Becker's ideas on applying human rationality to everyday life with a serious look at the insane, the irrational world we live in. That's why the subtitle is the Rational Economics of an Irrational World. Because in truth, the world is a very confusing and complicated place. And the Mr. Spock reasoning only gets us so far. So for 30 or 40 years, economists have either accepted or rejected Gary Becker's ideas pretty much on the basis of faith. I've always found them very persuasive, very clever. The question is, you either find this sort of reasoning plausible. People weigh out the costs and benefits when they're deciding who to get married to. People weigh out the costs and benefits when they're deciding whether to commit a crime. You either find that plausible or you find that repugnant. But either way, it's really just been a matter of opinion, a matter of faith. And what has changed in the last five to 10 years is that economists have got extremely good at at looking at the world, looking at the increasing availability of data. They've got extremely good at performing experiments both in the lab and in the field. They plug people into brain scanners. They tap into huge government run federal experiments where you effectively able to perform a randomized trial on big sections of society. And economists have got very, very good at working out, well, how do people actually behave? Is Gary Becker right or not? The most famous of all of these economists is of course, Stephen Levitt, the author of Freakonomics, who is tremendously smart and tremendously respected in the profession. But he's just one of dozens, maybe hundreds of extremely smart economic researchers doing the same sort of thing, the data detective work. But maybe it's best if I turn to Leavitt to try to understand what happened on 15th street, to try to understand what went through that guy's mind when he decided to pull out his knife. This is, I think, Levitt's best work. And I haven't read Freakonomics for a while, but I'm pretty sure it's not in Freakonomics. Leavitt asked himself, do harsher prison sentences actually deter juvenile criminals? Young men? Because it almost always is young men who are thinking of committing a crime against property or a violent crime. These are the most unlikely people we would think of to weigh up costs and benefits to really sort of reflect on their experience as Lex Luthor master criminals. It's as far away from Gary Becker's world as we could get. Do they actually respond to harsher punishments or not? I don't need to tell this audience how difficult that question really is to answer because you can look and say, well, punishments got stricter. And then, you know, and crime went up. And did the stricter punishments caused the increase in crime or, you know, it's very hard to disentangle cause and effect with this kind of thing because, of course, the policy is constantly responding to what's going on on the street. And what's going on on the street may or may not be responding to the policy. Very hard to understand. But Levitt realized, hang on, 50 US states. Each US state has a different punishment system for juveniles and for adults. And by the way, in the book, you see a lot of work based on the fact that you have 50 states and they all have different systems. It turns out to be a tremendously good way of working out what happens and what doesn't. 50 different states. What happens when kids go through the age of majority in a state where the adult punishment system is a lot more severe than the juvenile punishment system? How does that affect their behavior? What about when they go through the age of majority in a state where there's basically no difference between the adult and the juvenile punishment systems? What about in states where they just change the laws? So the juvenile punishment system changed and the adult punishment system didn't? You can see you now start to have. There are still questions of cause and effect, but you now have a lot more data, detailed data about how. Excuse me. About how these young kids respond to the threat of punishment. So what's the answer? Turns out that Gary Becker is right. Gary Becker's right. He wasn't right about what happened on 15th street, but he's right often enough to make this a very sensible way about thinking about policy. I don't think the policy prescriptions are obvious at all, but a sensible way to think about the way that people behave. In this case, of course, the very interesting thing is we don't know why Gary Becker is right. Gary Becker doesn't know why Gary Becker's right. I don't think Gary Becker cares terribly much about why he's right. Gary Becker is brilliant at producing these theories and saying, okay, if people were rational, this is what they would do. Now all of you guys go away and tell me if it's true or not, because I'm not going to do that. I'm going to go on to the next theory. So he's the economist, by the way, who by some reckonings, his work has been the most tested of any economist in the 20th century. He has produced the largest number of theories that people are just desperate to know whether he's, he's right or not. And it turns out he is right. But we don't know why. And in fact, you must immediately be thinking, well, hang on, how could that possibly be true? How could people in fairly extreme situations. So in the book I talk about teenage sexual behavior, I talk about juvenile delinquents, I talk about people with bad habits like not exercising or eating ice cream or taking heroin. And how can it be that people behave rationally? The simple answer is we don't know. We don't know. Economists do put people in brain scanners these days. They call themselves neuroeconomists. They do look at people in the lab, they perform these clever experiments, they're using computers, or they set up these very, very clever field experiments, putting people in realistic settings and seeing how they behave. But really that's not what economists are best at. What economists are best at is looking at the patterns in the overall data. And the truth is, although we don't know what's going on up here, we know what we see in society. And that is only one part of the jigsaw of understanding how societies work, understanding how people work. But I think it's an important part of the jigsaw and it's a part of the jigsaw we didn't have 10 years ago. I want to give you at least some sense of how it could be that people are so good at weighing up costs and benefits, that although we're not all 75 year old economics professors, nevertheless somehow we were able to think about the costs and benefits of our actions, the risks and rewards of our actions. So the first thing to think about is a baseball player or a wide receiver can catch a glimpse of a baseball or football in flight for just a second or a half second and can turn and can run without seeing the ball and can suddenly turn again and pluck that ball out of the air. Now we know that the flight path of the ball is perfectly describable mathematically. We also know that while you guys maybe were good at that in school, most people couldn't solve those sums. And we certainly know that the wide receiver, I don't see him with a pen and paper. I don't see him calculating the parabolic arc of the ball in flight somewhere, he's calculating it. He doesn't know how he's calculating, but his brain is calculating this. So it's possible, because the brain is a wonderful thing, that the brain is able to do all this stuff subconsciously. Now, it's also perfectly reasonable to say, well, maybe the brain can work out the path of a ball in flight, and maybe the brain can't work out economic logic. Maybe the brain can't work out costs and benefits. Maybe the brain can't utility maximize. It then becomes a question of evidence. Then it becomes a question of going and having a look and seeing what we can find. We do know, to stay with the world of professional sports, that tennis players, for example, or soccer players are very good at making what turn out to be complex economic decisions about strategy. So you're serving in tennis. You serve to the backhand or to the forehand. This is not about calculating the flight path of the ball. This is about thinking about the likely responses of your opponent, who may also be a rational being. How good is his forehand? How good is his backhand? If his backhand is weak, I want to serve to his backhand, but if I serve to his backhand all the time, then he knows I'm going to serve to his backhand. So I want sometimes to serve to his forehand, but not 50% of the time because his forehand's stronger. So what is the correct mix of strategies? Yeah, if you go to grad school with Google's chief economist, Hal Varian, he'll teach you how to do this. Turns out that Roger Federer and Rafael Nadal and all the other top tennis players know how to do this anyway. We don't know how they do it. We don't even know if they know that they're doing it, but they do it. It's actually very easy after the fact to compute whether somebody did this or not. The same thing with soccer players. Now, soccer is not as big here as it is back home, but I can assure you soccer players are not the smartest guys. And yet even David Beckham chooses whether to go left, right, or straight on with his penalty kicks, where it's just a battle of wits with the goalkeeper. He plays game theoretically optimal strategies, and so, by the way, does the goalkeeper. So it is possible that the brain is able to calculate these economic decisions. Of course, we're talking here about professionals, talking here about very, very smart people. Not smart in the regular sense, but people who are true experts in what they do. And one of the Things I discussed in the book is the way that we do get better with experience. It's not that we are born infinitely rational, unboundedly rational, or able to calculate all this stuff. We get better when we're dealing with familiar decisions. But I don't think that's a cop out, because you think about the amount of time you spend in your life dealing with familiar decisions versus the amount of time you spend dealing with unfamiliar decisions. The whole point about familiar decisions is where you hang out, how you do your job, what you buy in the store. These are the decisions we are very comfortable with, but they're also the decisions that fill up most of our lives, almost by definition. And I think, by the way, that this is. I don't want to get into internecine warfare with other economists, but there's a very influential popular school of economics now called behavioral economics. And what behavioral economics means is basically, they want to find out how people really act. And they tend to argue that people make systematic mistakes. And I have absolutely no doubt that they are correct. You put people in the lab and you can trick them into doing all kinds of things, making some very dumb decisions. And this is important work. The challenge for the behavioral economists is to show that the weird behavior you see in the lab is preserved when you take people out of the lab and put them in a more natural setting, and particularly when you put them in a natural setting that they have some familiarity with. And John List, who's another University of Chicago professor, has done some great experiments I talk about in the book, where he basically takes a behavioral economics result, duplicates it in the field. And he finds that in the field, people do exactly the stupid thing that they did in the laboratory for about 90 minutes, and then they get over it. So, and this is, by the way, he's hiring people to do a job. So the job could last a week, six months, 10 years, 90 minutes after they start the job, they're on the rational curve. So the thing that you found in the laboratory is maybe not as relevant as it first seemed. So we're onto the question of evidence. What evidence can we gather that people behave rationally? And there are all kinds of ways that economists can gather this evidence. So I almost said, gather these elephants. I don't know what I'm thinking there. So they look at the patterns they find in the data. They do lab work, they do field experiments, they do the brain scanners, they do very sophisticated computer simulations now, all kinds of stuff. And I talk about all this work in the book and one of the things that I most enjoy is when they organize these very realistic field experiments. My favorite field experiment I want to tell you about because it leads into the economics of dating, marriage and divorce, is two European economists, Michel Bellot and Marco Francesconi, who are based in the uk, who sweet talked and Marco Francesconi, he's Italian, he's extremely charming, he can sweet talk anybody. They Sweet talked the UK's biggest speed dating company into sharing all their data on speed dating. Hands up here anyone who's been on a speed date. Let me ask a different question. Hands up here, anyone here who knows a friend who's been on a speed date. Since none of you have any familiarity with speed dating, let me just briefly, very briefly, explain the idea. So you have a big room, there may be 20 guys, 20 girls. Of course you can have gay speed dating and so on. But just for the sake of simplicity, without making any judgments, I'm just going to talk about people pairing up heterosexually for the next 10 minutes, otherwise it'd be very confusing. So you have guys and girls go to the speed date and the women sit at tables for two with a glass of chardonnay or a cocktail, which they're probably going to need, to be honest. And then the guys will sit down and everyone has a checklist that basically says, you know, girl number, girl A, guy number one, girl B, guy number two. And you just tick yes, no, yes, no, yes, no, yes, no. And you meet each person for three minutes. So and if you think about it, that means you have to listen to them for at least 90 seconds. Okay. Can it be very, very hard to really get a lot of information? But it's better than nothing. You can get information about how people match up and what people like and who people like in a way that you would never have been able to get 10 years ago. You would never without, I don't know, say, a pair of high powered binoculars and a very, very good lawyer. So the speed dating is very useful. Economists also study online dating, of course. So what did they find studying speed dating? Well, the first thing they found is a bunch of stuff that won't really surprise anybody. So they found that the men propose a lot more potential dates than the women do. They found that people prefer non smokers, people prefer educated professionals to uneducated professionals or educated non professionals. They found that men prefer slim women. They found that women prefer tall men. And I'm six foot three, by the way, in my stockinged feet. So they found all this stuff and that Won't be terribly surprising. But here's the question. You go to a speed date, all the guys There are under 5 foot 7. What do you do? This gets to the heart of the question as to whether the Romantics are right about love. The romantic view of love is there is one special person out there, you know, my prince or my princess. They're out there probably on a white horse somewhere. They have a, you know, they look like this. They're into these bands. They've everything about, you know, just this is the person for me. That's the romantic view. So the question is, are the romantics writer or the cynics? Writer and the cynics basically say, we take what we can get. Okay, so supply and demand is fully operational in the dating market. So get back to the question of what happens when all the men are under 5 foot 7. You would expect, if the romantics are right, that the women do not propose as many dates because the men are far less likely to match up to what they wanted. What you in fact find is that the women propose exactly as many dates as they would have done if all the men were six foot six. They turned up. The goods weren't quite what they expected, but they basically just said, OK, fine, we'll take it. I wanted someone with a PhD. You dropped out of high school. Fine, everyone else dropped out of high school. I'll take it. Now, of course, this is just speed dating. We're not talking about who you marry. But bear in mind that, sure, the cost of going on a speed date with someone who isn't perfect is pretty low. At the same time, the cost of keeping your standards high is also pretty small because the speed dating company will invite you for another evening if you felt you were unlucky with the mix of people the speed dating company was, oh, we're really sorry. Come along again. So basically, it costs you very little to keep your standards up, and yet they drop like a stone. By the way, the obvious advice is to go out to bars with short, ugly friends and then you'll be fine. So it turns out that the title of this research is Anybody Can Be the One. And Marco Francesconi in this very charming Italian accent says, look, who you eventually marry. He's done lots of research. Who you eventually marry, who you want to date, who you are attracted to is largely a function of what is available on the market. In this particular case, that is entirely random. In many other cases, of course, it's not random. Who you meet is not random at all. But still, we take what we can get. I mean, this is a silly example. In the book, I talk about some more serious stuff. At least my single female friends tell me it's very serious. Because it turns out that demography is not in favor of women. In most major metropolitan cities, women outnumber men, not only in Manhattan, but in almost all major cities, not only across the US but across the developed world. And of course, you know, there's no nice way to put this. It means the women are in excess supply. This goes down extremely poorly with my single female friends. This fact was discovered not only by Carrie Bradshaw of Sex and the City, but by. By Lena Edlund, who's an economist at Columbia University. She's fascinating. One of her other papers is called hermaphroditism. What's not to like? So very interesting woman. So she wrote a paper called Sex in the City that pointed out that there is this shortage of men in most cities. And she argued that this is entirely rational. This is entirely rational because women have twice as many reasons. They have two reasons to move to the city and men have only one reason to move to the city. So both men and women want to move to the city because cities offer great opportunities, great career opportunities. You get good jobs in the city, you do not get good jobs in Nebraska. So that applies equally to both sexes. But then she argues, well, but women also have another reason to go to the city, which is that could meet a rich guy. Now, I'm really glad that she said this, not me, but why should we believe that that's stereotyping? Why should we believe that? Well, we can take the economic evidence that comes from Internet dating sites. Internet dating sites, and this is by three behavioral economists, I think, based at mit. They find that when men say they have a high income on an Internet dating site, they get lots and lots of plus clicks. When women say that they have a high income on an Internet dating site, they don't get so many clicks. So my advice to the female members of the audience is treat their egos gently. You probably knew this already, but it seems to be. And sociobiologists will argue this, and Gershwin argued this in Porgy and Bess, your dad is rich and your mom was good looking. You remember that line. So maybe it is just a stereotype. But if Lena Edlund is right, that men are just not interested in meeting rich women, but women are interested in meeting rich men, well, that's the second reason for women to move to the cities, because that's where the rich men are just as an additional poke in the eye, Lena Edlin then analyzed her home country of Sweden. And she found that the metropolitan areas where the highest male incomes were also the metropolitan areas where the largest number of women aged 18 to 35. So I, by the way, it's an interesting story. People get very offended by this stuff, of course. So I asked Lena Edlund, why did you move to New York? She didn't seem to think it applied to her at all. Maybe I'm being unfair to her, I don't know. But it strikes me that we have to remember we're talking about patterns here. We're talking about a lot of stuff that's going on subconsciously. Even the economist who produced the theory, produced the data, sets it all up, publishes it in a peer reviewed journal. We say, ok, fine, well that includes you, Wright as well. And she's like, oh no, no, not me, just other women. So anyway, there you go. I think that's worth bearing in mind. And not everything in the book I find persuasive. Not everything in the book will stand, I think, up to the test of time. This is all or mostly new academic research. Some of it has not been published until this year. One or two pieces haven't even been published at all yet. And I'm sure some of it will not stack up. But that's the cost of being at the cutting edge of economics and seeing what economists are talking about. Let me talk briefly about, and then I'll stop and take questions because you've been very patient just listening to my soothing English accent droning on. Let me talk about what I think is an important partial exception to the thesis of the book, and that is addiction. So Gary Becker's theory of addiction is pretty straightforward. Okay, sure. There are such things as addictive substances in the world. Nicotine is addictive, alcohol is addictive, heroin is addictive. They are also fun to use and they are risky. These things could really screw up your life. On the other hand, they might not, particularly when it comes to smoking. Smoking at least used to be cool. We now know from our speed dating, by the way, that it's no longer cool. So don't do it. Don't do it, kids. This is the message, get it out there. But there are basically costs and benefits to taking these potentially addictive substances. And who are you to say that? You look at an addict and to say, well, this person was irrational, even if it turns out that they got addicted and the thing ruined their life. I know people who've got married and it Ruined their life. It doesn't mean that they were irrational to get married. It just means they were unlucky. So we've got to bear in mind that distinction. So that's Gary Becker's analysis, and he sets it all out and he draws all kinds of interesting conclusions from it. Let me introduce you to another fascinating character, Thomas Schelling, another Nobel Prize winner in economics who also writes about addiction. And Tom Schelling told me when I met him that Tom Schelling, by the way, I could say so many things about this guy. He had a fight with Henry Kissinger. He advised Kennedy during the Berlin crisis. He's an amazing guy. All I really need to tell you is that he was the script consultant on Dr. Strangelove, okay? That's all you really need to know. He's an amazing man. And he won the Nobel Prize. Very good. So he's still alive, but he's quite elderly now. And in the 1950s in London, he was sitting in a restaurant, visiting London, probably on diplomatic business, knowing Schelling. And he was sitting in this restaurant and this lady came past with a carton of cigars and she. That's what people used to do. She sold him a cigar. He had quit smoking and he thought that he was basically free of the habit. So he lit the cigar and he smoked the cigar. And he said he spent the next 18 years in complete torment trying to quit. I learned then that Gary Becker doesn't know what he's talking about. So that's Schelling's view, and he writes in detail about how addiction really works. Here's the puzzling thing for the obviously absurd view, obviously absurd view that Gary Becker has, that addiction is rational. When cigarette prices are due to go up next year, smokers quit this year. Think about if your favorite restaurant was going to put up its prices next year, would you stop going this year or would you go all the more this year to enjoy it while it was still cheap? You'd go all the more right now. And the reason you go all the more right now is because you know you're not addicted to the restaurant. Okay? You enjoy it while you can, and then when the prices go up, you'll go less. The smoker knows that he is addicted. The smoker knows if he spends the next six months puffing away and then cigarette prices go up, it's going to be even more difficult to quit. So the smoker quits. Now, that's evidence on cigarettes. We have the same evidence on gambling. Increased taxes on gambling due to come in next year. They slow down gambling right now, which suggests that gamblers are addicted to gambling, and they know they're addicted to gambling and they are capable of quitting if you change the cost benefit analysis. Here's the most astonishing one for me. When alcohol prices go up, people drink less alcohol. Okay? Big wow. We don't think that's very interesting. Then a couple of economists, Philip Cook and George Tauschen, looked at the medical records in the counties where alcohol prices had gone up, and they found that liver damage had fallen dramatically. So while alcohol consumption went down moderately, it seemed to be the extreme alcohol consumption that was falling off a cliff. To an economist, this makes perfect sense. Okay? Alcoholics drink the most booze, so of course they are the ones who respond most to an increase in tax. But it does suggest that somewhere there is rationality behind it all. But how do you square that with the obvious fact that these people are in the grip of an addiction? Tom Shelling says he's one of the most rational people in the world. He knows his cigarette addiction wasn't rational. So how do we resolve this? Well, Schelling told me all about the games he played with himself trying to quit smoking. He was a negotiator on the Marshall Plan after the second World War. He was a Cold War advisor dealing with the Soviet Union, the very, very highest level. He was very, very used to thinking about game theory, the interaction between two people. So he just said, okay, fine. Now the game theory is this guy wants to quit, this guy doesn't want to quit. Ok? Now I just have to win the battle of Whitworth myself. And that's how he started to think about it. He called it egonomics. And it turns out it was very informal, his early thoughts, very informal. But it turns out there's a lot in it. And one of the ways in which he quit was he had an envelope with a check for a large sum of money made out to the American Nazi party. And he said, if I ever smoke, I'm going to put that check in the mail. And the weird thing is that kind of thing seems to work. Even if you can't resist the cigarette, you will still be honest and post the check. More recently, economists have been doing research in the rural Philippines, and they've been doing research with commitment savings accounts. So the rural poor, they struggle to save for exactly the same reasons we struggle to save, because it's more fun to spend the money now, right? And he found Dean Carlin is the economist who did this. Dean Carlin set up a commitment savings account in conjunction with a local bank. You save your money and then they don't give it back to you. It's great. It really works. They don't give it back to you until you've reached a certain level of savings. He found that this account was freely available. Some people signed up, some people didn't. The people who signed up were the people whose responses to a survey indicated that they had a self control problem. They knew they had a problem and they did something about it. Final example, you will have been admiring my fantastic abs and pecs, no doubt throughout the talk and you'll have been wondering to yourself, how did this puny English economist become a man of steel like that? It turns out it's all economic rationality. There is a new company some of you may have heard of called stick.com2ks and they have $1,000 of mine. It's run by three economists. Of course. One of the economists is Dean Carlin who did this work in the rural Philippines. If I don't do 200 push ups and 200 sit ups a week, which is not that many, but it's 200 more than I was doing, they're going to mail my check to DC Central Kitchen, which is a great charity based in D.C. and it's perfect because I support DC Central Kitchen, but I don't want to support them to the tune of 1000 bucks just yet. But. But at the same time, if I ever didn't do the exercise, I would feel like such a rat if I didn't own up to it and get the check posted to DC Central Kitchen. I think if it was the American Nazi party, I'd probably find it within my heart to lie. But for D.C. central Kitchen, no, this stuff really works. So there is an example of a partial exception to the rule where we are irrational at the first level and yet you take a step back and suddenly we discover some rationality after all. And if rationality can get me to exercise, it must be a pretty powerful force. I'm very happy to take questions. Thank you very much for listening. Is this on? Did it go on? Okay, great questions. Can I do this one first? Thanks. Wouldn't the men also move to the.

City to meet a gold digger woman who's skinny?

You're right. What you need to do is solve the equilibrium, which fortunately is not the kind of thing I do because I'm a writer rather than. I gave up economics when I was like proper hard economics when I was 23. Thank goodness I managed to quit the habit. Another triumph for human rationality. If you solve for the equilibrium, it's. It turns out that in equilibrium there are more women than men. At least that's what Lena Edlund tells me. And I always believe what Lena Edlund tells me. It's a good question. Thank you.

Doesn't this thing about more women in the cities only apply if you have societies which have a large fraction of the population, or certainly a significant fraction still living in the countryside? For the very highly urban societies, does this still apply? I'm thinking about societies which have 90% of the population in the urban centers.

Or Singapore, which is 100% urban. So Lena Edlin looked at 46 countries and in 43 of them you have to adjust for all kinds of things like the murder rate and there are demographic differences. But for 43 of the 46 countries, the. The women outnumbered the men in the cities relative to what was going on in the countryside. And for the other three, the ratios were equal. You are right. The US is 80% urban already. But nevertheless, we still see this. There are still enough places for the men to go. Prison is one of them, by the way. Alaska is another. There are still enough places for the men to go that we still see this. My favorite line about Alaska, by the way, is if you do want to find a date and you're female, the odds are good, but the goods are odd.

By the way, what were the three countries where it was about equal?

I can't remember. But if you come up afterwards and give me your details, I'll find out for you. Or you can Google Lena Edlund's paper. It's called Sex and the City. Edlund is E D L U N D. So.

Thank you.

Thank you. I have a question actually on smoking. So I understand that you were saying that smokers are likely to reduce their smoking level the year prior to a tax increase. And I was wondering how that ties into the idea that smokers are more likely to seek instant gratification, which I think is the accepted theory.

I think that's true. There are two things going on. This is going to be a long answer, a longish answer. So you can stand up afterwards if you like. I don't want to keep you sort of standing for the answer. So. So, because it's really interesting. So economists call this hyperbolic discounting. What they mean by hyperbolic discounting is that stuff that's really close in the future weighs very heavily. And then later on, your discounting of the future is much more Gradual. So in other words, my preference between, say, a drink on Friday night and a hangover on Saturday morning, it's Monday. I'm thinking to myself, you know, it's not worth it to feel so bad on Saturday. Now, if I'm purely rational, I hold those views all the way through the week. Even on Friday, I still hold the same view about the relative trade off between the Friday night and the Saturday morning. But if I discount hyperbolically, when Friday gets really close, I start to behave differently. And actually, suddenly the drink on Friday night seems like a good idea, and I don't really care about the Saturday morning. So it turns out that we all display this behavior to some extent, but smokers are an example of people who do it a lot. My favorite example comes from a guy called Daniel Reed, who. So he started by getting people to help him out with his research. And then after they'd helped him with his research, he said, thank you very much. As a token of gratitude, I'd like to give you something to eat. Would you like fruit or would you like candy? And people said, well, candy. That was with the first group of people, with the control group of people. He said, I'd like you to come back next week to give me a hand some more. And then next week I'll give you, as a gesture of gratitude, I'll give you either fruit or candy. Which would you like? At which point they'd say, oh, fruit, yeah, next week, fruit. When they turned up next week, he'd say, oh, you could have the Snickers bar. And it's like, oh, yeah, actually, I was an idiot last week. What was I thinking about what I would actually want? He then did the same thing with films. He offered people a chance to see films. And it turns out, if you want, and you will see this when you go to Blockbuster, you'll see this in yourself. If you're offered the chance to see a movie now, for some reason, Mrs. Doubtfire or American Pie rank high. If you're offered the chance to see a movie next week, you realize that to watch Kurosawa's masterpiece Rashomon would make you a better, more cultured, more interesting person for the rest of your life. And that is the film you really wish to see. When you turn up next week and the economist says, or you could watch Mrs. Doubtfire, you're like, you know, some jokes about fake breasts is exactly what I want. So we do behave in this way. And this is the sort of behavior that leads us to. To not exercise, to break with our diets, to not save, as those people in the Philippines were not saving, and to smoke. It's more severe for some people and for others. But all that said, I'm sorry it's such a long answer, but I just wanted to tell you about the films. By the way, even the researcher doing the research realized that he was renting videos, I think from Amazon. And he realized that he kept tweaking his Amazon list so that the really sophisticated films never quite made it to the top of the list. They were nearly there, but not quite. And he would quickly substitute in something low brow. And then he realized, even I'm doing it. However, it doesn't. So that is irrational. However, it's not a total abandonment of rationality. And you are able to think rationally about what you want next year, next month, even next week. And if you are smart, not everyone is able to do this. You realize, actually I'm going to run into a problem. And if this is really important to me, then I'm going to take steps. So I'm going to pre order Rashomon and I'm going to throw away my Blockbuster card. And when Rashomon arrives, I won't have any choice. I'll have to watch it. Or I will make sure that the candy bar isn't in the house, or the cigarettes aren't in the house, or that I've signed up with one of these companies that takes a commitment bond from me. So that's the basic answer. Yes, it's irrational, but it's not totally irrational. Thank you. Thanks. Sorry, can everyone hear the questions? Okay. Yeah.

I had a question about the illegal parking. The analysis seems incomplete. You didn't mention why the parking spaces were illegal. Perhaps they were illegal because they were handicapped spaces, or perhaps they were in front of a fire hydrant. If I double park, that's illegal, but it's also unsafe. How does that bear into the equation?

And Beckett also thought about not only when you said at first, why are they illegal? There is the city's decision as to how many spaces to make available. In general, I think behind your question is the idea that there are social costs as well as private costs, and that if we were decent people, we might not care about. We don't really care about taking up a 30 minute space. It's no big deal. But if we're going to obstruct the traffic or take a disabled space, that makes us feel worse, or it should make us feel worse and it should alter the balance of our calculations so that Then opens up the question as to do we believe this caricature of economic agents as being this sort of perfect combination of Gordon Gekko and Mr. Spock. So infinitely rational and infinitely self absorbed and greedy or not. Becker in his modeling usually models preferences as selfish. But there is no but not always Becker thinks about social preferences and there's no intrinsic reason why our preferences have to be selfish in these economic models. In the book, I take a very pragmatic view of what it means to be rational. It's not a mathematical definition, which is what economists would usually use. I'm basically arguing that people are weighing costs and benefits, responding to changes in their options by moving in the appropriate direction, rather than just saying, I'm not going to trade off on this, I know what I want and I'm not going to move. But also that their preferences be intelligible. So I don't accept the idea that, say the reason that prostitutes don't use condoms is because prostitutes want to catch aids. For me, that's not acceptable as an explanation. I have another explanation as to why prostitutes often don't use condoms, which I think is an acceptable explanation. It's based on intelligible preferences. I don't see anything wrong with the preference that says I care about my actions, I don't want to get in people's way, I don't want to be a doofus, I don't want to be a jerk. And so I see myself as a moral agent that seems to be perfectly intelligible. I think there's lots of room in economics for these social preferences. Have I answered your question? Yeah. Thank you. Wow, that was suddenly lots of questions after that response.

Hi, I'm just curious, is there any research done on regard of speeding? Like I found how my mentality work is right after I got a speeding ticket and building that high penalty, I think I shouldn't speed anymore. But then I think like if it's evenly distributed and if I got the ticket right after now, then I shouldn't get ticket for a while. So I start speeding again.

There is research I'm not aware specifically on speeding, but there is research on which risks seem salient to us. What risks actually seem important. And that is a challenge to the ideas in the book. There is one case in the book where I explore this a little, which is, I think an astonishing piece of work. And I don't know whether it's actually going to be borne out. It's not been published yet by an economist called Andy Francis who showed that who Seemed to show that in the early 90s, people who had a relative who had AIDS, the risk of getting AIDS suddenly became very salient to them. And they were more likely. This is the incredible bit, they were more likely to avoid having sex with men. So if they were previously gay men, they were more likely to be having sex with women. If they were previously straight women, they were more likely to be having sex with women. He didn't look at what happened if your friends had hiv, because that's. Obviously your own sexuality affects who your friends are likely to be. But his argument was that people were responding to a change in risk by altering their sexual behavior to a degree that is much more than we would think. The thing that makes me doubt that piece of research, I put it in because it's so interesting, but the thing that makes me doubt that piece of research is not just that, could it really be true? I mean, there's just an intrinsic question mark over it, but also the risk didn't change. It was just the salience of the risk that changed. So the idea is you have people who are somehow not really taking into account the risk, and suddenly when they have a relative, when they see how bad it is to have this disease, this is in the early 90s, before we had very effective treatments, they suddenly realize, actually, this is something I have to bear in mind. And I'm going to alter my behavior to a very large degree to take that into account. So that's the sort of thing we're talking about here. I don't explore it too much in the book. I think the research on risk salience is important, and I think it's a challenge to the traditional economic view of things. One more question. Who had their hand up first? Let's be honest.

You're making a conclusion about dating behavior from the Internet dating site data. Now, are those data in any way biased? So how can you make that inference to the whole population? I'm not quite sure. Is that a correct way to do this?

So you're. I agree. I mean, your suggestion is that maybe for some reason, and of course we don't really want to speculate on what that reason is, but for some reason, the people who use Internet dating sites may be just a bit different to the rest of us, which I think is. I think that's increasingly untrue. I think Internet dating sites are getting more and more mainstream. But five years ago, that was certainly true, and I agree with you. However, I'm making an argument about our preferences that if doesn't just rest on that Internet dating data. It also rests on sociobiology work. It also rests on laboratory data. It also rests on, well, frankly, what your grandmother would tell you about how people are. I like it because it's new and it's an interest. It's a new angle on that. But the idea that women are more concerned about male wealth than men are concerned about female wealth is a stereo. I mean, it's an old stereotype. But there are a lot of different reasons why we might believe that. But I agree. I certainly wouldn't lean only on the Internet dating data as my sole piece of evidence. For sure. For sure. There were other people with questions. I'm very happy to talk afterwards to anybody who wants to chat. So all I have to say is the book is called the Logic of Life. We talked about addiction. We talked about crime. We talked about dating. We didn't talk about why your boss is paid too much, which may be interesting in Google. We didn't talk about how city neighborhoods work. We didn't talk about race. So there's still lots of reasons to read the book. But I really hope you've enjoyed the time we've talked here. I've enjoyed myself very much, and thank you for listening.